Everybody dreads an IRS audit. Generally, you can stop worrying about an audit after three years, but sometimes the IRS can audit up to six years back, and rarely, even longer. When can you stop worrying and throw out all your old receipts?
updated November 28, 2023 · 2min read
The IRS has the right to audit your business to ensure that taxes were correctly reported and paid. If the audit reveals an underpayment, the IRS will assess additional tax and any related interest and penalties. At what point can you breathe a sigh of relief and confidently toss old records and receipts?
Generally, the IRS will audit returns from the past three years. If auditors discover a substantial issue, they may increase the audit scope to include additional years. The IRS typically won't audit more than six years prior unless it has reason to suspect fraud or you never filed a return.
The IRS is subject to a statute of limitations that sets a maximum amount of time that the IRS has to initiate an audit.
The statute of limitations for assessing additional taxes or charges is generally three years after a return is due or filed, whichever is later.
Although the default statute of limitations is three years, the IRS generally tries to audit tax returns as soon as possible after they are filed, so most audits are conducted on returns filed within the past two years.
In cases where the IRS deems a return to have "substantial omissions," the statute of limitations increases from the default three-year period to six years. The extended statute of limitations for substantial omissions applies when:
You should be aware that once the IRS opens an audit due to one of these omissions, they can assess taxes and penalties for any findings resulting from the audit – not only findings directly related to the omission. This means that even if certain errors were reported and not audited within the original three-year audit window, the IRS can include those findings in the current audit.
In certain situations, the IRS has no statute of limitations and may assess taxes, penalties, and interest indefinitely. This is the case if:
Rather than living in dread of an audit, you should follow sound accounting practices and maintain organized and detailed records of business income, expenses, and any tax-related items. As a general rule, most accountants recommend that you keep supporting documents for seven years in case the IRS chooses to audit your business or you need to file an amendment to claim a refund.
by Naomi Levenspil
A CPA by trade, but a writer at heart, Naomi Levenspil jumps at the chance to exercise the right side of her brain. W...
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